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THE  ANGLO-FRENCH  LOAN 

Conditions  Necessitating  a  Foreign  Credit  and  Its  Effect 

on  Our  Commerce 


NATIONAL  SHAWMUT  BANK 
'  40  WATER  STREET 

BOSTON 


te.  W15 


Digitized  by  the  Internet  Archive 

in  2008  with  funding  from 

Microsoft  Corporation 


http://www.archive.org/details/anglofrenchloancOOshawrich 


-I 


COPYRIGHT 
NATIONAL  SHAWMUT  BANK 


SEPTEMBER  was  one  of  the  most  eventful  periods  in 
American  finance.  On  the  first  day  of  the  month  sterl- 
ing exchange  fell  to  $4.50,  indicating  a  shrinkage  of  more  than 
36  cents  in  the  pound  sterling.  The  decline  was  not  confined 
to  bills  on  London  but  extended  in  equal  if  not  greater  measure 
to  those  on  other  European  centres.  A  number  of  causes 
contributed  to  this  result.  Europe  was  then  making,  as  she 
still  continues  to  make,  extraordinary  demands  upon  us  both 
for  the  necessities  of  life  and  for  innumerable  products  for 
direct  and  indirect  use  in  war.  Hand  in  hand  with  this 
movement  was  a  highly  exceptional  falling  off  in  our  imports, 
occasioned  by  the  decline  in  European  production,  and  the 
inabihty  to  get  goods  through  from  certain  great  markets. 

These  two  sets  of  facts  constituted  a  situation  in  this 
country  bordering  upon  the  perilous.  The  productive 
capacity  of  our  farms  and  of  many  of  our  manufactories  is 
considerably  in  excess  of  our  own  demands.  The  growth  in 
our  population  has  been  so  great  that  a  market  for  this  excess 
is  necessary  in  order  to  insure  the  people  of  the  United  States 
the  standard  of  living  to  which  they  have  become  accustomed 
in  the  past.  The  decline  in  imports  was  in  itself  a  matter  of 
no  great  importance.  A  year  or  two  of  economy  in  our  mode 
of  living,  far  from  being  a  bad  thing,  might  be  a  very  good 
thing,  provided  our  industrial  activity  continued  normal. 
It  would  mean  among  other  things,  that  we  were  putting 
aside  for  a  rainy  day  what  otherwise  we  might  needlessly 
spend.  But  that  was  not  the  situation  that  was  confronting 
us  a  month  ago. 

In  order  to  sell,  a  nation  must  buy.  It  must  take  back  a 
fair  equivalent  of  what  it  send?  out,  and  this  equivalent  must 
be  in  the  form  of  goods  or  gold.    A  month  ago  we  did  not 

3 


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want  more  goods  of  the  kind  we  could  get,  and  we  could  not 
get  more  of  the  kmd  we  wanted.  The  great  drop  in  exchange 
on  Europe  showed  us,  however,  that  we  might  not  be  able  to 
get  gold  much  longer  in  amounts  that  would  induce  us  to 
export  our  commodities  freely.  Many  of  the  war  orders  were 
made  payable  in  dollars,  which  means  that  the  American 
sellers  received  their  money  at  the  face  value  of  the  contracts, 
the  foreign  buyers  standing  the  loss  in  exchange.  Large, 
however,  as  were  the  war  orders,  there  remained  a  great 
export  business  that  was  conducted  without  this  recourse. 
The  sellers  received  their  pay  in  bills  on  Europe  which  they 
could  sell  in  the  exchange  market  only  at  a  heavy  discount. 
In  other  words,  exporters  were  confronted  by  two  dilBSculties, 
that  of  coming  out  whole  on  goods  which  they  had  sold  when 
exchange  was  at  higher  figures  than  the  current  figures,  and 
that  of  figuring  out  what  the  course  of  exchange  might  be  in 
the  event  of  their  doing  new  business  with  foreign  countries. 

Prior  to  the  war  these  difficulties  did  not  exist, — to  be 
more  exact,  they  existed  only  to  a  negligible  extent.  The 
main  curve  of  the  fluctuations  in  exchange  rates  had  long 
been  clearly  ascertained;  exceptional  conditions  might  arise 
from  time  to  time,  but  they  were  seldom  of  a  character  to 
impose  lasting  hardship  on  any  considerable  number  of  those 
engaged  in  foreign  trade.  The  difficulty  and  cost  of  importing 
gold  at  the  periods  of  high  merchandise  exports  and  of  export- 
ing it  at  the  periods  of  high  merchandise  imports  were  not 
sufficient  to  embarrass  trade  between  this  and  foreign  coun- 
tries. The  past  thirteen  months,  however,  have  radically 
transformed  the  situation  in  this  respect.  For  the  last 
fiscal  year  our  exports  exceeded  our  imports  by  about  a 
thousand  milHon  dollars.  For  the  thirteen  months  subsequent 
to  the  first  of  August,  19 14,  there  was  an  excess  of  exports 
amounting  practically  to  $1,500,000,000.  Trade  conditions, 
therefore,  impose  upon  us  no  necessity  of  exporting  gold. 
On  the  contrary,  there  is  a  very  great  necessity  of  our  import- 
ing gold  or  some  other  form  of  wealth  to  cover  the  present 
huge  excess  in  our  merchandise  exports  and  to  insure  the 


continuance  of  our  foreign  business  on  a  normal  scale.  To 
make  the  situation  even  clearer,  it  should  be  added  that  the 
figures  relating  to  our  excess  of  exports  are  very  much  nearer 
real  figures  than  they  have  been  at  any  time  in  the  last 
generation  at  least.  The  intangible  elements  in  them  have 
been  greatly  reduced.  Since  the  war  began  we  have  taken 
back  from  Europe  American  securities  to  an  amount  sufficient 
to  effect  a  heavy  reduction  in  our  annual  interest  payments 
abroad.  Prior  to  the  war  it  was  estimated  that  American 
tourists  and  commercial  travelers  spent  hundreds  of  millions 
annually  in  foreign  countries;  the  major  part  of  that  expendi- 
ture has  ceased  in  the  last  fourteen  months.  It  would  be 
interesting  to  know  how  far  the  reduction  in  these  intangible 
exports  has  offset  the  payment  we  have  made  Europe  since 
the  war  began  for  the  American  securities  we  have  bought 
back.  These  purchases  have  been  variously  estimated  at 
upward  of  $500,000,000.  If  we  may  accept  this  figure  as 
anywhere  near  correct,  it  has  obviously  been  measurably  if 
not  fully  covered  by  the  customary  expenditure  abroad 
which  this  year  we  have  eHminated. 

From  this  it  is  clear  that  the  real  balance  of  trade  is  at 
the  present  time  so  strongly  in  favor  of  this  country  as  to 
make  us  debate  two  questions:  first,  whether  we  desire  to 
import  gold,  and,  secondly,  whether  Europe  can  afford  to 
export  to  us  enough  gold  to  keep  our  foreign  trade  on  the 
basis  which  our  well-being  requires. 

No  one  can  view  with  favor  the  importation  of  gold  at  this 
time.  The  receipt  of  one  or  two  hundred  million  more  for 
the  purpose  of  rectifying  the  exchanges,  however  necessary 
circumstances  might  make  it,  would  be  extremely  regrettible. 
Too  much  gold  is  about  as  harmful  as  too  little.  An  insuffi- 
ciency restricts  the  basis  of  mercantile  credit  and  therefore  the 
industrial  activity  of  the  nation.  A  redundancy,  if  continued 
very  long,  is  almost  certain  to  result  in  over-expansion  of 
credit,  unhealthy  speculation,  and  financial  collapse.  The 
willingness  evidenced  in  past  months  that  the  metal  should 
pile   up   in   this   country   has   only   one   explanation.     The 


normal  expense  of  importing  gold  from  London  is  only  a  few 
cents  on  the  pound  sterling,  whereas  to  sell  a  bill  of  exchange 
at  the  quotation  of  the  present  moment  would  mean  the 
sacrifice  of  something  over  14  cents  on  the  pound.  That 
gold  has  not  come  this  way  during  recent  months  in  very 
much  heavier  amounts  may  be  attributed  to  a  great  decrease 
in  the  available  supply  on  the  other  side  of  the  Atlantic  and 
to  a  hope  that  foreign  governments  would  eventually  take 
extraordinary  measures  to  restore  to  par  their  public  and 
private  credit  in  this  country.  Their  delay  in  doing  so  has 
had  some  unfortunate  results.  It  has  undoubtedly  fostered 
speculation  in  exchange  in  a  way  to  make  the  situation  for 
those  having  debts  to  pay  abroad  harder  than  it  would  other- 
wise have  been.  It  is  alleged  that  there  was  short  seUing  of 
exchange  and  also  that  there  was  a  marked  absence  of  buyers 
even  aroimd  the  lowest  quotations.  Such  conditions  could 
not  last  very  long  without  vitally  affecting  the  exports  of 
American  commodities. 

The  time  had  come  for  drastic  measures.  It  was  obvious 
that  our  foreign  trade  could  not  much  longer  flourish  under 
such  conditions  as  were  witnessed  during  the  summer  of  19 15. 
And  it  was  equally  clear  that  Europe  would  not,  and  probably 
could  not,  export  sufficient  gold  to  this  country  to  keep 
exchange  approximately  at  par.  The  month  of  September 
opened  with  the  well  established  belief  that  Great  Britain, 
either  alone  or  in  conjunction  with  other  European  powers, 
would  soon  effect  an  arrangement  for  rehabihtating  our 
foreign  exchange  situation.  This  arrangement  has,  as  a 
matter  of  fact,  just  been  perfected,  an  Anglo-French  com- 
mission, composed  of  bankers  of  international  repute  and 
headed  by  the  Lord  Chief  Justice  of  England,  having  reached 
this  country  during-  the  first  half  of  September  for  that  pur- 
pose. The  commission  entered  at  once  into  conference  with 
bankers  from  all  parts  of  the  United  States,  and  with  their 
aid  has  evolved  a  plan  for  restoring  the  foreign  exchange 
situation  to^  as  near  a  parity  as  practicable  by  means  of  a 
credit  to  Europe,  in  place  of  gold  exports  from  Europe.     The 


credit  will  be  in  the  form  of  a  $500,000,000  note  issue,  to  run 
for  five  years  at  5  per  cent,  repayable  in  cash  or  convertible 
at  the  option  of  subscribers,  into  4  J^  per  cent  joint  Anglo- 
French  bonds  redeemable  in  ten  to  twenty  years  by  the  two 
governments  jointly  and  severally.  The  bonds  will  be  issued 
in  denominations  as  low  as  $100,  and  payment  for  them  may  be 
made  by  installment.  They  will  be  sold  to  investors  to  net 
better  than  5%  per  cent. 

The  wisdom  of  the  loan  is  admitted  fully  as  much  by  those 
whose  natural  feelings  are  opposed  to  England  and  France 
as  by  those  whose  S3anpathies  are  with  the  Allies.  The  pur- 
chase of  the  bonds  will  not  be  made  with  any  regard  for  the 
interests  of  these  two  nations,  but  wholly  to  protect  our  own 
interests,  which  at  the  present  moment  are  very  seriously 
menaced.  As  previously  intimated,  we  cannot  sell  to  Europe 
unless  we  buy  from  Europe.  We  must  buy  either  goods,  or 
gold,  or  securities.  We  have  been  disabused  of  the  idea 
that  Europe  needs  our  resources  and  cannot  get  along  without 
them.  We  have  an  historic  instance  of  how  she  got  along 
without  our  cotton  during  the  Civil  War.  In  the  past  year 
she  has  bought  extraordinary  amounts  of  our  cereals  and 
provisions,  but  these  are  not  indispensable  to  her.  There  is 
no  reason  to  suppose,  for  example,  that  the  United  Kingdom 
would  starve  if  it  did  not  have  our  wheat.  The  wheat  )deld 
of  the  world  for  191 5  has  been  estimated  as  substantially 
500,000,000  bushels  larger  than  that  of  19 14.  It  is  estimated 
that  for  next  year  England  will  require  about  240,000,000 
bushels,  France  85,000,000,  and  Italy  75,000,000,  a  total  of 
400,000,000  bushels.  It  is  also  estimated  that  Canada  will 
this  season  have  a  surplus  for  export  of  175,000,000  bushels, 
Agrentine  130,000,000,  Australia  60,000,000,  and  India 
50,000,000,  or  a  total  of  415,000,000  bushels. 

This  is  significant  in  view  of  the  fact  that  we  have  an 
exceptionally  large  wheat  yield  this  year.  Briefly,  we  are 
likely  to  have  between  400,000,000  and  500,000,000  bushels 
for  export.  If  the  Dardanelles  are  opened  Russia  will  have 
a  surplus  from  this  year's  crop,  to  which  must  be  added  a 


very  considerable  portion  of  last  year's  yield,  which,  owing 
to  the  war,  was  unable  to  get  to  market.  As  the  total  world 
demand  for  wheat,  aside  from  England,  France  and  Germany, 
is  not  in  excess  of  150,000,000  bushels,  it  is  easy  to  conceive 
conditions  which  would  make  it  difficult,  if  not  impossible, 
to  market  more  than  a  relatively  small  portion  of  our  surplus. 
As  Mr.  James  J.  HilLhas  recently  declared,  even  if  we  should 
cut  our  wheat  production  in  two  it  would  require  two  or  three 
years  to  work  off  the  surplus.  The  price  of  the  whole  crop 
would,  of  course,  be  fixed  by  the  price  of  the  unusable  surplus, 
and  Mr.  Hill  probably  does  not  go  too  far  in  saying  that 
wheat  will  be  sold  below  the  cost  of  production  and  our  farm 
interest  be  involved  in  a  disaster  from  which  it  could  not 
recover  for  many  years.  In  different  degrees  this  would  be 
true  of  our  cotton,  meat  products  and  provisions  generally. 
If  this  is  a  correct  forecast,  and  there  is  every  reason  to  beheve 
that  it  is,  we  should  be  confronted,  in  the  event  of  a  failure 
of  the  Anglo-French  loan,  with  a  situation  which  would  be 
little,  if  any,  short  of  staggering.  There  is  ground,  however, 
for  considering  the  success  of  the  loan  as  assured,  in  which 
event  we  may  regard  the  prospect  just  outlined  as  a  night- 
mare. The  chances  are  that  we  shall  not  only  retain  all  that 
we  have  already  gained  in  the  way  of  trade  advantage,  but 
add  thereto. 

There  is  one  advantage  to  be  gained  from  the  new  note 
issue  about  which  very  Httle  has  yet  been  said.  One  of  the 
most  objectionable  things  to  a  banker  or  a  merchant  is  a 
rapidly  fluctuating  market.  Frequent  and  violent  changes 
in  foreign  exchange  markets  point  to  increasing  difficulty  on 
the  part  of  the  industrial  world  in  transacting  its  affairs. 
If  such  an  exchange  market  as  has  been  witnessed  in  this 
country  for  some  months  past  should  be  long  continued,  our 
merchants  and  manufacturers  would  find  themselves  in  a 
position  very  similar  to  that  of  merchants  and  manufacturers 
doing  business  with  a  silver  standard  country  in  a  period  of 
violent  fluctuations  in  the  white  metal.  Such  an  outcome 
must  be  far  from  everyone's  desire. 

8 


It  has  been  assumed  by  some  that  the  Anglo-French  loan 
would  work  to  the  disadvantage  of  this  country  by  depriving 
it  of  a  large  amount  of  its  working  capital.  Such  persons 
would  no  doubt  admit  that  the  maintenance  of  our  foreign 
trade,  which  the  loan  is  designed  to  effect,  is,  in  itself,  a  very 
good  thing.  But  can  that  end  be  gained  if  we  hand  over 
$500,000,000  of  our  capital  for  use  by  England  and  France? 
If  England  and  France  were  to  take  the  $500,000,000  and  use 
it  elsewhere,  some  importance  might  be  attached  to  this 
question.  But  the  whole  amount  of  the  loan  will  remain  on 
deposit  in  the  banks  of  this  country  and  will  be  used  for  the 
purchase  of  American  commodities.  The  situation  that  has 
been  created  is  about  as  follows.  The  English  and  French 
governments  acting  as  a  unit  borrow  half  a  billion  dollars  in 
the  United  States  and  deposit  the  proceeds  in  the  banks  of  this 
coimtry.  They  are  in  position,  therefore,  to  offer  half  a 
billion  dollars  of  exchange  (or  an  amount  equivalent  to  that 
sum  in  pounds  and  francs)  in  the  London  and  Paris  markets 
for  foreign  exchange.  A  merchant  in  London,  we  will  say, 
places  an  order  for  goods  in  New  York.  To  make  payment 
he  buys  a  bill  on  New  York.  On  receipt  his  creditor  in  New 
York  deposits  the  bill  at  his  bank  and  the  bank,  directly  or 
indirectly,  draws  upon  one  or  another  of  the  banks  holding 
the  deposit  of  the  English  and  French  governments,  thereby 
diminishing  the  credit  balance  of  these  governments  by  the 
amount  owed  the  New  York  merchant  by  the  London  mer- 
chant. In  other  words,  the  bank  account  of  the  two  govern- 
ments has  been  decreased  and  that  of  the  New  York  merchant 
increased  by  the  transaction.  But  the  New  York  merchant 
owes  a  St.  Louis  manufacturer  a  sum  equal,  let  us  say  for  the 
purpose  of  keeping  the  illustration  as  clear  as  possible,  to 
that  paid  him  by  the  London  merchant.  He  therefore  sends 
him  his  check,  by  which  means  this  portion  of  the  credit  of 
the  English  and  French  governments  is  transferred  to  the 
use  of  the  St.  Louis  merchant,  who  promptly  transfers  it  to 
somebody  else,  and  he  to  another.  What  this  means  is  this: 
owing  to  the  credit  obtained  in  the  United  States  by  the  two 
European  governments  a  vast  amount  of  American  products 

9 


which  might  otherwise,  owing  to  reduced  demand  at  home, 
be  very  slow  of  sale  is  marketed  at  satisfactory  prices,  the 
credit  instruments  by  which  the  goods  were  got  out  of  one 
set  of  hands  into  another  being  immediately  available  for  new 
transactions. 

We  have  here  a  fine  illustration  of  what  the  pohtical  econo- 
mists call  the  "efficiency  of  money."  Money  is  of  no  use 
except  when  it  is  effecting  trades.  The  more  times  a  dollar 
gets  around  in  the  course  of  a  year,  the  greater  the  business 
done  by  the  commimity  in  which  it  circulates.  "Money"  is 
a  very  broad  term.  In  common  usage  it  means  gold,  silver, 
greenbacks,  bank  notes,  checks,  drafts,  bills  of  exchange,  etc. 
The  great  bulk  of  the  money  by  which  the  trade  of  this 
country  is  effected  is  in  the  form  of  credits.  A  credit  arises  in 
this  way:  a  merchant  or  manufacturer,  for  example,  goes  to 
his  bank  and  makes  a  loan;  he  does  not  carry  the  proceeds  of 
the  loan  away  with  him,  but  leaves  them  at  the  bank  until 
the  time  arrives  for  him  to  use  them  in  whole  or  in  part;  the 
bank,  therefore,  credits  him  with  a  deposit  corresponding  in 
size  with  the  loan;  as  soon  as  he  desires  he  can  begin  to  draw 
checks  against  this  deposit;  and  these  checks  pass  current 
as  money.  A  fundamental  fact  remains  to  be  mentioned. 
As  soon  as  the  bank  credits  its  customer  with  a  deposit  it 
must  begin  to  keep  a  legal  reserve  on  that  deposit.  It  will 
be  seen,  therefore,  that  a  bank's  ability  to  extend  credit  to  its 
customers  is  hmited  only  by  its  ability  to  keep  the  required 
reserve.  For  example,  on  September  25  the  banks  of  New 
York  had  about  $200,000,000  of  gold  above  the  legal  reserve 
requirement.  This  means  that  they  could  have  begun  im- 
mediately to  expand  their  loans  by  upward  of  $1,000,000,000 — 
in  other  words,  that  they  could  have  been  the  means  of  enlarg- 
ing the  outstanding  volume  of  credits  to  that  amount.  Of 
course  they  would  not  have  considered  it  prudent  to  do  that; 
but  if  they  had  had  the  incHnation  to  do  it,  the  law  would 
not  have  restrained  them. 

But  at  this  jimcture  two  of  the  strongest  borrowers  in  the 
world  come  forward  and  ask  for  half  a  billion  of  credit  in  the 

10 


United  States.  It  is  now  assured  that  this  large  sum  will  be 
advanced  by  thousands  of  individuals  scattered  all  over  the 
country.  These  individuals,  will  draw  practically  the  whole 
sum  from  their  banks.  That  is,  the  banks  Will  indirectly 
advance  to  the  English  and  French  governments  a  simi  very 
nearly  half  as  large  as  the  maximum  amount  by  which  the 
banks  of  New  York,  the  great  reserve  centre  of  the  United 
States,  could  enlarge  their  volume  of  credits  on  the  phenome- 
nally large  gold  reserve  which  they  had  at  this  time.  Hence 
we  see  that  the  two  European  governments  have  found  a  way 
to  do  for  us  what  we  have  not  succeeded  in  doing  for  our- 
selves, namely,  putting  the  latent  resources  of  our  banks  to 
work  on  a  very  large  scale. 

The  consequences  of  the  loan  to  the  two  contracting 
nations  are  of  vital  importance  to  us.  In  fact,  this  loan 
cannot  be  dissociated,  in  the  mind  of  one  who  takes  a  com- 
prehensive view  of  finance,  from  the  general  question  of 
European  indebtedness.  A  year  or  more  ago  it  would  not 
have  occurred  to  any  one  to  conceive  of  an  indebtedness  as 
large  as  that  which  the  nations  of  Europe  have  now  contracted. 
By  the  middle  of  September  the  war  loans  of  the  Allied  Powers 
(Great  Britain,  France,  Russia  and  Italy)  amounted  to 
$10,563,500,000,  divided  as  follows:  $5,715,000,000  for  Great 
Britain,  $1,853,000,000  for  France,  $2,605,500,000  for  Russia 
and  $390,000,000  for  Italy.  To  this  will  soon  be  added  the 
$500,000,000  of  the  new  Anglo-French  loan,  and  there  is 
forthcoming  another  large  French  loan.  By  the  middle  of 
last  month  Germany  had  placed  $3,390,000,000  of  war  loans, 
$10,000,000  of  which  came  to  the  United  States,  and  Austria 
Hungary  had  borrowed  $1,755,000,000.  Turkey,  mean- 
while, had  obtained  an  advance  of  $250,000,000  from  Germany. 
In  the  last  half  of  September  Germany  offered  another  loan 
of  $2,500,000,000.  Here  is  a  grand  total,  not  including  the 
forthcoming  French  loan,  of  $18,958,500,000  of  war  loans 
already  placed  or  now  in  the  act  of  being  placed.  To  this 
must  be  added  $332,000,380  of  indebtedness  occasioned  by 
the  war  on  the  part  of  various  neutral  countries,  such  as  Hol- 

11 


land,  Roumania,  Bulgaria,  Egypt,  Switzerland,  Denmark, 
Spain,  Norway  and  Sweden.  The  ability  of  Europe  to  take 
care  of  this  enormous  indebtedness  is  of  course,  a  matter  of 
importance  to  this  country  not  merely  because  we  have  already 
advanced  more  than  a  negHgible  portion  of  the  money,  and 
are  asked  to  advance  an  exceedingly  heavy  amount  in  the 
near  future,  but  also  because  our  future  industrial  conditions 
will  have  a  very  direct  relation  to  the  solvency  or  insolvency 
of  Europe. 

There  is  reason  to  believe  that  the  European  nations  are 
far  from  the  end  of  their  borrowing.  No  one  can  foresee  to 
what  heights  the  war  debts  will  rise.  With  substantially 
$19,000,000,000  arranged  for  in  the  last  fourteen  months,  one 
may  be  able  to  conceive  what  the  end  will  be  if  the  war  is 
prolonged  a  year  longer,  or  two  years  longer,  as  some  predict. 
Yet  it  is  easy  for  one,  in  viewing  this  situation,  to  let  his 
apprehensions  nm  away  with  him.  That  the  Great  Powers 
will  be  obliged  to  increase  taxation  to  a  point  altogether 
beyond  the  knowledge  of  the  present  generation,  may  be 
taken  for  granted.  And  this  is  the  fact  in  which  we  are  most 
vitally  interested;  because  excessive  taxation  is  apt  to  mean 
reduced  purchasing  power,  and  reduced  purchasing  power  on 
the  part  of  Europe  would,  other  things  being  equal,  have  an 
adverse  influence  on  the  trade  situation  of  the  United  States. 

Some  idea  of  the  means  by  which  Europe  hopes  to  take 
care  of  her  new  war  indebtedness  may  be  gathered  from  the 
last  budget  speech  of  the  British  Chancellor  of  the  Exchequer. 
He  said  that  Great  Britain's  debt  will  soon  aggregate  $11,000,- 
000,000,  and  to  take  care  of  this  obligation  he  proposed  to 
add  40  per  cent  to  the  existing  income  tax  rate,  and  to  lower 
the  exemption  Hmit  from  £160  ($800)  to  £130  ($650),  besides 
increasing  the  super  tax  on  incomes  of  £8000  ($40,000)  and 
over  from  34d  to  42d  per  pound.  He  also  proposed  to  intro- 
duce a  special  tax  on  profits  which  had  increased  during  the 
war.  An  increase  in  the  sugar  duty  was  announced,  and  an 
all  around  increase  of  50  per  cent  in  the  duty  on  tea,  coffee, 
chicory,   tobacco,  dried  fruits  and  other  articles  was  sug- 

12 


1      <    •• 

1  < 


gested,  as  well  as  an  increase  of  loo  per  cent  on  patent  medi- 
cines. The  necessity  of  keeping  down  expenditures  in  im- 
ported luxuries,  such  as  automobiles,  moving  picture  films, 
clocks,  watches,  musical  instruments,  plate  glass  and  hats, 
was  emphasized. 

English  publicists  have  been  making  careful  comparisons 
of  the  present  situation  with  those  occasioned  by  great  wars 
of  the  past.  Mr.  W.  H.  Mallock,  recently  made  a  comparison 
in  the  Fortnightly  Review  of  these  times  with  the  period  of 
the  Napoleon's  War.  He  found  that  in  the  year  1812,  after 
nine  years  of  war,  the  total  interest  payable  on  the  national 
debt  was  £30,000,000,  the  debt  itself  being  £940,000,000. 
If  the  present  war  should  be  continued  for  another  two  years 
the  total  debt,  according  to  Mr.  Mallock,  would  (the  debt 
existing  before  the  war  being  included),  amount  to  £3,200,- 
000,000,  and  the  total  interest  payable  at  home  and  abroad 
would  be  perhaps  £130,000,000.  In  the  year  181 2  the 
interest  on  the  debt  was  about  £1  15s  per  head  of  the  popula- 
tion, out  of  a  total  average  income  of  £22.  The  average 
interest  per  head  two  years  hence,  should  the  war  be  so  far 
protracted,  would  be  about  £3  per  head  out  of  an  average 
income  of  £48.  Should  we  assume,  he  adds,  that  £140,000,000 
were  raised  otherwise  than  by  loans,  the  additional  burden  per 
head  of  the  population  would  be  about  £3.  The  total  average 
burden  would  be  thus  £6  out  of  £48.  In  whatever  way  he 
looks  at  the  matter  he  is  brought  back  to  the  conclusion  that 
if  the  present  war  should  be  protracted  to  the  maximum 
length  for  which,  according  to  common  computations,  either 
Great  Britain  or  Germany  could  stand  the  strain,  Great 
Britain  is  today  far  better  equipped  in  point  of  material 
resources  for  maintaining  its  present  struggle  against  Germany 
than  it  was  one  hundred  years  ago  for  maintaining  its  struggle 
against  Napoleon. 

Mi 

Such  utterances  are  reassuring,  so  far  as  the  ability  of  the 
great  powers  to  take  care  of  their  war  indebtedness  is  con- 
cerned. Other  things  being  equal  it  would  not  be  so  reassur- 
ing as  regards  Europe's  ability  to  buy  our  commodities  on  as 

13 


extensive  a  scale  as  in  the  past.  But  there  is  a  reasonable 
expectation  that  other  things  will  not  be  equal.  Hard  cir- 
cumstances are  likely  to  effect  the  aim  which  European  states- 
men have  so  much  at  heart  and  which  may  be  summed  up 
in  the  phrase  "produce  more,  spend  less."  Larger  production, 
however,  implies  larger  employment  of  raw  materials  and  food 
products;  in  other  words,  larger  employment  of  just  those 
resources  in  which  this  country  most  abounds.  There  is 
nothing  pleasurable  in  the  thought  that  we  shall  profit  by 
Europe's  misfortunes.  It  is  impossible,  however,  to  ignore 
the  fact  that,  in  the  great  redistribution  of  the  wealth  of  the 
world  occasioned  by  this  extraordinary  war,  we  are  the  nation 
which,  from  present  appearances,  is  in  a  position  to  gain  most 
and  lose  least. 


14 


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